Homeowners Can Leverage Equity to Combat High-Interest Credit Card Debt

The sharp increase in the cost of living has led many Americans to rely on credit cards for essential expenses, pushing credit card debt to record highs. According to a joint 2026 study by Freedom Debt Relief and Money.com, nearly one-quarter of borrowers with substantial unsecured debt have tapped into their home equity in the past 12 months to consolidate their balances.

Credit card debt is considered "bad debt" due to its high interest rates, which can hinder repayment. The average Annual Percentage Rate (APR) on credit cards is currently 23.79%, up from 23.75% in April. For a $5,000 balance at this rate, monthly interest alone can exceed $98. At minimum payments, it could take nearly 17 years to pay off the debt without incurring further charges. The Freedom Debt Relief/Money.com survey also found that 28% of borrowers with significant debt can only afford minimum payments, a figure that rises for millennials and Gen Z.

In contrast, "good debt" is associated with acquiring assets that appreciate in value, such as a home purchased with a mortgage. Converting high-interest credit card debt into a lower-interest, secured loan using home equity can be a strategic financial move. This strategy can significantly reduce the total interest paid over the life of the debt and provide a structured path to becoming debt-free, provided new credit card balances are not accumulated.

Understanding Home Equity Loans and HELOCs

Home equity loans and Home Equity Lines of Credit (HELOCs) allow homeowners to borrow against the equity in their homes. A home equity loan operates like a second mortgage, providing the full loan amount in a single, one-time payment. These loans typically feature a fixed interest rate, ensuring predictable monthly payments over a set period, usually 10 to 15 years.

HELOCs also leverage home equity but offer more varied structures. Some function as revolving lines of credit, allowing borrowers to draw funds as needed during a draw period. These may permit re-accessing credit as the balance is repaid and might initially require interest-only payments. Other HELOCs disburse funds upfront and follow a structured repayment schedule. Depending on the product, HELOCs can have fixed or variable interest rates, and borrowers must carefully review the terms regarding fund disbursement, payment calculations, and repayment duration.

Benefits and Drawbacks of Using Home Equity

Using a home equity loan or HELOC to pay off credit card debt can offer substantial savings. Home equity loan rates, ranging from 5.65% to 10.75% with an average around 8.12% to 8.25%, are considerably lower than credit card APRs. For instance, consolidating a $5,000 credit card balance onto a home equity loan at 8.75% could save over $6,200 in interest and reduce the payoff time by nearly a decade compared to making minimum credit card payments.

While many HELOCs have variable rates, some providers offer fixed-rate options, providing more predictable payments. Both options can be used for debt consolidation, home improvements, or other large expenses. The choice between a home equity loan and a HELOC depends on individual financial goals and preferences.

Home Equity Loan (Lump Sum):

• Pros: Fixed rate offers protection from interest rate hikes; structured payoff provides a clear debt elimination date; lower interest rates than credit cards.
• Cons: Interest is paid on the entire amount from the start, even if not immediately used; principal repayment begins immediately, potentially leading to higher initial payments; does not prevent accumulating new credit card debt.

HELOC (Line of Credit):

• Pros: Borrow only what is needed, paying interest only on the drawn amount; initial draw periods may have lower, interest-only payments; credit line can be replenished for future needs.
• Cons: Variable rates can lead to unpredictable payment increases; monthly bills can rise sharply at the start of the repayment period; easy access to funds might encourage overspending and deeper debt cycles.

Critical Considerations Before Borrowing Against Home Equity

While using home equity can be advantageous, it carries significant risks. Unlike unsecured credit card debt, which may be negotiable or dischargeable in bankruptcy without risking one's home, home equity loans and HELOCs are secured by the property. Failure to make payments on these loans can lead to foreclosure.

Therefore, this strategy is only viable for those who have addressed their cash flow issues with a realistic budget. True financial freedom requires an honest assessment of income and expenses to create a balanced budget. Without strict lifestyle discipline, borrowers risk falling into a "double debt trap"—paying off credit cards with a home equity loan while simultaneously accumulating new credit card debt, all while managing the new home equity loan payments. Services from providers like Achieve can assist individuals in determining if a home equity product is the appropriate solution for debt reduction.